AB InBev and Its Golden, um, Goose

I just got back from the 2011 Craft Brewers Conference in San Francisco. (Yes, had a great time; thanks for asking. Well, except for the part about the no airplane available on Sunday morning, which forced me to stay an extra day spent almost entirely in an airport hotel…..)

While I was gone, Anheuser-Busch InBev announced it had purchased a controlling share of Goose Island Brewing in Chicago and would soon buy the remaining shares. (ABIB already owned a share of the company that holds the minority share.

And the hand wringing has begun. (I’d post links, but there are too many. Just roam around the beerblogosphere and you’ll find plenty.)

But: why? Why the hand wringing? And why is anyone surprised? People, were ya not payin’ attention here at the ol’ blogarooney?

I told you three years ago that you could expect to see moves like this. The only surprising fact here is that there haven’t been more of such moves.

Yes, ABIB and MillerCoors will continue to grab onto craft breweries (how many of them depends entirely on who is inclined to sell. Many craft brewers prefer to keep it small/local/beautiful/whatever). And why not? The people running those companies are not stupid. They understand that a small but affluent segment of beer drinkers is willing to pay a premium for, ya know, premimum beers. Like Goose Island.

And for a beer maker, premium is where it’s at. (Premium beers take up the same amount of space in the warehouse and on the truck, but they bringer a higher profit per bottle than “regular” beers.)

So. Of course ABIB is interested. What will the company do with its new acquisition? I haven’t a clue, although it has two obvious options.

One, it can leave the beermakers alone to keep making what they make (premium beers). Or two, it can tell the beermakers to cease and desist and start making Budweiser knock-offs.

Smart money says they opt for Door Number One. Why? Because ABIB isn’t looking for Bud knockoffs. It’s hunting for premium beers. (Remember those: the ones that yield more profit per bottle than Bud?) Why screw with the goose that’s laying the golden egg? (No pun intended until I realized that, heee heeeee!, I’d just made a pun!) (I’m not so good at puns.)

Leaving Goose Island alone to do what it does best is a win-win for ABIB: It earns profit and it can start loading GI products on its trucks and selling them in a larger territory than was available to GI when it was on its own. 

So. Time will tell, but — I’ve been a pretty good prognosticator up to now.

15 thoughts on “AB InBev and Its Golden, um, Goose

  1. I saw your CBC talk and wanted to ask if Jack’s decision to start New Albion was decision with 100 year implications. Given this announcement, I think that the Jake Leinenkugel story that you told is an obvious parallel. The difference being that the Halls negotiated with much more market power.Sorry I couldn’t stick around to get my book signed, but there was more learning to be done!

  2. I agree with you in broad strokes. AB InBev is certainly not making this acquisition just to get another small facility where they can brew Bud Wheat. Certainly, Goose Island’s popular flagship beers like 312, Honkers Ale, and possibly even Matilda are safe.But what is likely to be lost is the spirit of innovation and novelty that has made Goose Island so good in the past few years. The specialty and vintage beers are the ones that I worry about. The new beers that Greg Hall would’ve come up with in 2013 are the ones that I lament. This is not a knock on Brett Porter, who by all accounts is great. But by then, the AB InBev cost accountants will be involved. The specialty and vintage offerings must be very expensive to brew, and of course vintage beers change regularly, and are therefore not suitable to massive production lines.Honestly, 312 and Honkers are only OK. They’re not really great beers, and local replacements aren’t hard to come by at Metropolis, Half Acre, Piece, and Revolution. But I agree, they are not at risk.

  3. ollllo (I’m sure I’ve got an extra “l” in there): sorry you didn’t have time to stick around, but thanks for coming to the talk. There was a LOT going on. There was a session at the same time that I wanted to go to myself!I don’t think Jack had much of a plan other than “I want good beer so I guess I’m gonna have to make it myself.” The problems he faced were SO completely different than brewers face now that it’s hard to convey just how monumental the task was.Aaron: re. the specialty beers. Yes, I can see that perhaps ABiB won’t want to spend the money — but: given the high cost of doing business, it’s not definite that Goose Island would have been able to keep spending the money either. and on the other hand, ABIB is surely aware that it’s in its interest to fine the money.But even if the company doesn’t want to keep investing in “new” beers, GI’s main brands will go to a much wider market now, and of course there are wildly creative beers all over the place in the US now. So it’s not like there won’t be ANYthing to drink!

  4. Interesting insights for sure. Your mention of the “high costs of doing business” is exactly what’s been bumming me out lately (well, that and being surrounded by people obsessed with startups.) It’s fine if these purchases allow better products to be distributed; it’s fine if they make money for the people who’ve worked hard to make that good product. What worries me is the fact that being bought out is the the only way for small businesses to be really successful…which, of course, relies on there being a corporate entity to do the buying out, which kind of reflects that nasty income gap we’ve all seen charted ad nauseam. I’m starting to wonder if there’s any real middle ground for people who want to run — and *own* — their own businesses.Sorry for the rant, that wasn’t about beer, specifically, just about a general trend I’m seeing. And I did enjoy your coverage of the conference!

  5. First off: as you well know, WorstProf, I’m a World Class Ranter and this is a Rant-Friendly Zone, so feel free!Second, yes and yes. And much as I hate to get on the “local” bandwagon, it does seem as though “local,” at least for bricks-mortar businesses, may be the best hope for small businesses. Assuming, ahem, that people don’t mind not being rich as sin/god/whatever. Because local will only take the pocketbook so far.But this all ties in w/the “let’s work for free” thing that’s been driving me batty the past few days. (My favorite word since Monday has been “No.”) Because clearly, even people who don’t want to be rich as sin still want to keep a roof over their heads. We need to get paid for our labor — whether we’re pounding nails, making photocopies, or writing books.I’m sure that some historian will look back at this era and pinpoint the whole “informatoin wants to be free” nonsense as the seed that turned into a jungle of “we’re rich, you’re not, you stay that way and you’ll do so by giving your labor away.” And poor Stewart Brand never meant that info/ideas want to be free. He ranks right up there with Shakespeare and Ben Franklin on the misquoted scale….

  6. Yes, I agree, we’re coming to a real crisis point….here’s the problem I see, and the one that’s not being discussed: what, exactly, making “enough” is, and why it may not even possible for people running small businesses at the local level. Keeping a roof over your head isn’t enough anymore, with rising health care costs and dubious Social Security, making enough means worrying a hell of a lot more about retirement than was previously considered…so again, it comes down to someone giving some sort of realistic estimate of what enough is, then telling me with a straight face that small businesses can make that amount for their owners. Though I also agree that free labor is a major part of this equation.Okay, yeah, I need to go do something cheerful.

  7. Well, in regards to the viability of small business, it seems you are talking in broader frameworks than this story, now. But if you want an example, this Goose Island story is a useful case. John Hall has been running Goose Island for 20+ years. Greg has been there a long time, too. The AB-InBev valuation of $38.8M must assume expansion potential that their investment will enable, but still. Goose Island was a “going concern” that has probably done pretty well for the Hall family. It could probably continue to do so, if that’s what they wanted.But you can’t blame somebody for wanting to retire after 20+ years. I just wish they’d sold it to somebody whose long-term vision were more in line with what they’ve been doing recently. AB-InBev will support it to the extent that it performs as profitably as their consultants have told them craft beer should be.

  8. Definitely talking in broader terms, but instructive/hopeful to know the details of this particular case. In the broader terms, though, what I see is a lot of people in food/bev businesses working their asses off and not making enough to retire on unless they get purchased by a larger corporate entity…so if they don’t/can’t sell their business they’re going to be working 24/7 literally until the day they die. So that’s my only concern, that there’s this idea of how small businesses can make it that really isn’t a feasible model without (essentially) corporate sponsorship. ‘Cause yeah, you can’t blame anyone for wanting to retire after a good run!

  9. Aaron, does anyone know why the Hall family decided to sell? I mean, I can definitely understand someone wanting out of the biz. It’s hard work. Re. the Goose Island story in general: clearly Hall’s model was “let’s grow beyond local,” because the beer had close to national distribution and of course was part of the Widmer Craft Whatever that corporate entity was called. So GI wasn’t exactly a “local” biz and hadn’t been for a long time.And yes, WorstProf’s point is a good one: even at the “local” level, it’s absurdly difficult if you’re doing anything that requires the need to hire someone. Once you get past your biz being more than just you yourself, well, yeah, very hard to offer benefits, etc. that make it possible to live.On the other hand: the optimist in me wonders if perhaps in this brave new era, perhaps our “lower” expectations will mean more people will be willing to settle for less than the corner office with view? I dunno…..

  10. Well, according to the official line coming from Goose Island, this is a “partnership”. John Hall said they needed resources to expand beyond what they’ve already done with the Craft Brewers Alliance (which was already part owned by AB InBev). They have expanded to the point where they are having trouble keeping up with demand in their current production facilities.If that were all, though, you’d just look to sell another minority stake for a few million and make your expansion plans. I think they want AB InBev’s network and reach, obviously, as well as the cash resources. They had some of that already with the CBA deal, so perhaps they’d used up all the capacity that that deal could afford? I’m guessing here, but I doubt they want just more of the sort of arm’s length support from AB that would come with another minority investment from them.The new Brewmaster, Brett Porter, was brought in last year as Head Brewer, so this must’ve been in the works, at least as an option for the Halls, for a while. Some people think Greg Hall just wants to do other things. He’s involved in a lot of local food projects. And he made the point of noting he is now at the same age his father was when his father totally changed course and started Goose Island. So as far as Greg is concerned, there are plenty of hints that he’d like to move on.

  11. @Maureen Agreed that we don’t have to aim for the corner office, but my biggest fear here is that what’s presented as extravagant earnings are now the new “enough” in terms of retirement/benefits. And believe me, I love our local businesses and really want them to succeed, which is why I’m hoping the whole micro-lending/business model is going to work locally. That said, I’m pretty wary of what’s being presented as a workable model these days. @aaron I think that’s the dream, that you become so successful that you need help filling demand and that’s when someone offers to buy you out. But again, this is not necessarily the norm, which is why I brought the question up. More power to those businesses that do create such a great product, though!

  12. Well, who knows? Maybe we will all be serfin’ USA….. It does seem to me, changing the subject slightly, that at time when the “arts” (broadly defined) have more chance than ever to be seen, acknowledged, enjoyed, the ways of PAYING for those “arts” are narrowing. By which I mean that most people seem to assume that writers, rock-and-rollers, whatever not just can work for free, but SHOULD work for free.So maybe that expectation/assumption will slowly works its way into the very fabric, and only those people who construct barriers around their work (eg, surgeons, maybe?) will be able to still demand payment and the rest of us will be living in the woods (what’s left of them) subsisting on nuts and berries. All of which begs the questions: What will a world look like when there are no more writers, painters, journalists (who are REALLLY getting screwed; their work has been completely devalued), etc.? Because none of those folks can work for free. And second, who will be among the lucky left to earn money and will they be able to force everyone else work (eg, serfdom survives for another day!)Aaaron: interesting all around on the Hall story. And, yes, I’m sure that a) Hall wanted more resources; that’s almost always why someone sells; and/or b) he wanted to do something else and who can blame him? After all, 70 is the new 50, right? (Or whatever….)

  13. Maureen, I think it’s interesting to consider the Hall’s as artists. I agree, though it is a fairly marketable art product that they produce.If you are interested in some ongoing conversations about whether artists can be paid, how much art is being produced, who is going to pay for it, etc, I recommend following the #supplydemand and #2amt hashtags on Twitter. These are theater-centric conversations about these very issues. The #supplydemand discussion was kicked off by NEA head Rocco Landesman, and the NEA’s blog (http://arts.gov/artworks/) has a lot of interesting conversation on this too–on how more people are participating in art as producers than ever before, etc…

  14. What hasn’t been said is that the Craft Brewers Alliance wasn’t actually doing that well. GI, Widmer and others put a lot of hope into that venture and it’s just not paying off for them. I also find the notion of them selling off minority shares to finance things a bit silly. The fact is that while the Hall’s family might be making money GI certainly wasn’t doing that well. Craft Brewers have to try and brew near capacity while selling a majority of what they brew just to keep their doors open. Putting a brewery further in debt or selling off stock is just a way of extending the amount of time they’ll survive. The reality of today’s market is what dictated this sell. Look for more foreign investors to buy up breweries and narrow the playing field. I smell a repeat of lagers early boom days

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